"Portfolio Management": standard deviation

B is correct. Jensen’s alpha = 0.12 – [0.027 + 1.5(0.075 – 0.027)] = 0.021, or 2.10%.

A is incorrect. This is calculated by subtracting the market return from the portfolio return: 0.12 – 0.75 = 0.045 or 4.5%.

C is incorrect. This is calculated without the inclusion of the risk-free return: 0.12 – 1.5(0.075) = 0.0075 or 0.75%.

C is correct. Standard deviation is a measure of dispersion in a probability distribution and is used to describe the range of outcomes (minimum and maximum, centered on the expected outcome) that can occur with a particular probability. In contrast, duration measures the sensitivity of a security or portfolio to a change in market interest rates, and vega measures the sensitivity of a security (either a derivative or a security with derivative-like characteristics) to a change in the price volatility of the underlying asset.

A is incorrect because vega measures the sensitivity of a security (either a derivative or a security with derivative-like characteristics) to a change in the price volatility of the underlying asset.

B is incorrect because duration measures the sensitivity of a security or portfolio to a change in market interest rates.